Risk-Averse Sentiment Strengthens Amid Cryptocurrency Decline
Last week, significant drops in Bitcoin and other cryptocurrencies led to weakened stock market performance. Overall, risk aversion dominated the market, though a temporary stabilization by the weekend allowed some recovery in risk tolerance.
In the forex market, the dollar weakened as US Treasury bond yields faced upward resistance.
Focus Areas: Cryptocurrency Movements and US Economic Data
With cryptocurrencies continuing their decline over the weekend, hitting new lows, risk-off sentiment may persist into Monday. Caution is advised.
Key US Economic Indicators This Week:
- Revised quarterly GDP figures
- Personal Consumption Expenditures (PCE) Price Index
- Durable Goods Orders
Strong data could fuel expectations of monetary policy tightening, potentially supporting the dollar while pressuring equities and cryptocurrencies.
In Europe, Germany’s IFO Business Climate Index will be released. Progress in COVID-19 vaccinations may shift focus to potential ECB policy adjustments if data outperforms.
Currency Strength Analysis
Last Week’s Forex Market:
- AUD and NZD weakened noticeably.
- USD trended softer, while CHF, GBP, and JPY showed relative strength.
30-Day Trends:
- JPY and USD remained weak.
- CAD, GBP, and CHF maintained strength.
Global Index Performance (30-Day Comparison)
US Markets:
Stocks dipped early due to cryptocurrency volatility but stabilized by weekend’s end.
European Markets:
Indices mirrored US trends, rebounding after initial dips.
Asia-Pacific Markets:
Less impacted by crypto declines but faced upward resistance.
Financial Product Correlations
Forex Pairs:
AUD/USD showed isolated weakness, while other USD pairs moved with moderate correlation.
USD/JPY & JPY Crosses:
Correlation observed with AUD/JPY, NZD/JPY, and CAD/JPY—other crosses lacked clear direction.
Equities vs. Forex:
Low correlation between US500 and major currency pairs last week.
Market Positioning and Trends
USD/JPY
- Resistance capped gains, pushing prices lower.
- OANDA data shows high long positions, but recent dips increased unrealized losses.
EUR/USD
- Peaked at 1.2245 before retreating.
- High short interest suggests potential selling pressure on rallies.
GBP/USD
- Reached 1.42 before resistance triggered a pullback.
- Watch support levels to confirm trend continuity.
AUD/USD
- Range-bound; a break below 0.77 may signal further declines.
US500 (CFD)
- Rebounded from 4060 to test 4100 resistance.
- Mixed OANDA positioning reflects cautious sentiment.
FAQ Section
Q: Why did cryptocurrencies affect stock markets?
A: Crypto declines amplified risk-off sentiment, leading investors to reduce exposure in volatile assets, including equities.
Q: What could strengthen the USD?
A: Strong US economic data may prompt Fed tightening expectations, boosting demand for the dollar.
Q: How does ECB policy relate to EU data?
A: Positive data (e.g., IFO Index) could pressure the ECB to consider tapering stimulus, influencing the euro.